Risk appetite has subtly increased, leading high-risk stocks to outperform the S&P 500 index.
On Monday, investors poured into the riskiest sectors of the US stock market, significantly boosting the performance of stocks that struggled last year. Loss-making technology companies, distressed companies, and those with high short positions emerged as big winners on Monday, outperforming the S&P 500 in the early days of 2025. The Goldman not-profit technology index closed up 3.3%, while the short index, which tracks the most heavily shorted stocks, rose 1.8% before closing little changed. Last year, both Goldman indexes — particularly the one tracking not-profit technology companies — lagged the benchmark index.Michael O’rourke, chief market strategist at Jonestrading, said, "The election mania that followed Christmas is back. It’s aggressive risk trading. I think it’s a short-term phenomenon at the beginning of the year and it may lose steam by the weekend."The risk appetite surge, however, did not significantly boost small-cap stocks, with the Russell 2000 index lagging the S&P 500 on Monday. The Russell 2000 index fell 0.1%, while the S&P 500 index rose 0.6%.The emergence of risk trading coincided with heightened global uncertainty. Donald Trump, the US president-elect, could launch a new round of tariffs and trigger a trade war with major allies later this month. The Federal Reserve's interest rate path is also unclear, as inflation remains more persistent than expected. Meanwhile, concerns about the high valuations of tech stocks are starting to mount.Despite these concerns, a series of positive news on Monday helped propel tech stocks higher. First, Foxconn, the parent company of Nvidia's server assembly partner, reported that its revenue growth was faster than expected due to continued demand for AI infrastructure. Then, Qualcomm unveiled new chips aimed at powering personal computers capable of running the latest AI software, at a cost of just $600. Investors also anticipated that Nvidia CEO Jensen Huang's keynote speech would drive the chipmaker's stock higher.Dave Lutz, a stock sales trader and macro strategist at Jonestrading, said, "The news from Foxconn, along with the expected announcements at the Consumer Electronics Show, seems to be triggering a broad-based buying of tech stocks, leading to significant short squeezes. A short squeeze refers to the forced buying back of a stock by traders who are short to cover their losses. This further pushes up the stock price."#